Nontraded food commodity spatial price transmission: evidence from the Niger millet market

Using an Augmented Factor Vector Autoregressive (FAVAR) Model, this study analyzes spatial millet prices transmission in Niger. Our results did not find condition for millet markets integration existence. However, the Granger causality tests and impulse response functions from the estimated short‐term dynamic as FAVAR model revealed the existence of leading markets whose millet prices affect a maximum number of other regional millet prices, while some regions seem to be isolated from trade or information flows. Furthermore, the significance of a shock depends also on the characteristics of the region where it originates in terms of millet demand or supply, indicating that the region to target and where the price shock originated matter for the policies’ success.     

Asymmetric price volatility transmission between food and energy markets: The case of Spain

The proportion of agricultural production that is being transformed into biofuels has been growing worldwide over the last decade. This has spurred the food versus fuel debate. This article aims at shedding light on this issue by studying price volatility relationships between food and biofuel prices in Spain. We use an asymmetric MGARCH model to evaluate volatility spillovers between the Spanish biodiesel blend and refined sunflower oil prices. Empirical results confirm that there are bidirectional and asymmetric volatility spillovers between these two prices.     

Threshold cointegration and spatial price transmission when expectations matter

We examine the performance of the threshold cointegration approach, specifically Band‐TVECM, to price transmission analysis in an explicit context where trade decisions are made based on expectation of final prices, because trade takes time. We find that, following a standard inference strategy, a large portion of three‐regime cases are not identified as such. Results show that transfer costs are systematically underestimated, particularly in three‐regime models. The speed of price transmission is also biased in three‐regime models. Furthermore, inferences about occurrence of trade are poor, with estimated models suggesting far lower market integration than is true in the data‐generating process.     

Notes on farm‐retail price transmission and marketing margin behavior

Perfect farm‐retail price transmission sometimes is taken to mean an elasticity of price transmission (EPT) equal to 1. We show that this definition is inconsistent with Gardner's (1975) model. We also show that the absolute marketing margin (defined as the difference between the retail price and farm price) responds differently to shifts in retail demand, input supply, and technical change in the marketers’ production function than does the relative marketing margin (defined as the ratio of the retail price to the farm price). The empirical implications of these results are discussed in some detail.     

Evaluating price transmission between global agricultural markets and consumer food price indices in the European Union

This paper uses error correction models to evaluate the extent to and speed at which world agricultural commodity price movements affect consumer food prices in the European Union member states. We consider three types of world commodity price indices, each containing different commodities and weighting criteria. Results reveal a long‐run relationship between world agricultural commodity and consumer food prices in over half of the member states. Consumer prices in different member states and categories of member states respond differently to specific world price indices, suggesting that there are disparities in the structure and the efficiency of their food markets. The eurozone founders generally have lower transmission elasticities. This should be taken into account when predicting the impacts of extreme world price volatility and consumer food price rises, prompting governments to pay attention to the most vulnerable households.     

Agricultural price transmission across space and commodities during price bubbles

This article investigates agricultural price transmission during price bubbles. The empirical approach concerns the horizontal transmission of cereal prices both across different market places and across different commodities. The trade policy intervention put forward to mitigate the impact of price exuberance is considered. The analysis is performed using Italian and international weekly spot (cash) price data over years 2006–2010, a period of generalized turbulence of agricultural markets. Firstly, the properties of price time series are explored; then, interdependence across prices is specified and estimated by adopting appropriate cointegration techniques. Results suggest that the bubble had only a slight impact on the price spread and the temporary trade‐policy measure, when effective, has limited this impact.     

The transmission of world maize price to South African maize market: a threshold cointegration approach

This article seeks to provide an explanation for the relationship between domestic maize price in South Africa and world maize prices in order to evaluate comovement and transmission of world prices to domestic prices in sub‐Sahara African countries. This is done by comparing nested and nonnested models that capture different forms of nonlinearity in the price spread. Adopting a Bayesian approach that allows for comparison of models using Bayes factor, we found that the relationship between South African price and world price for maize indicates the presence of nonlinearity in price transmission with three regimes that is triggered by the price spread in previous period.     

The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products

Given the leading role of private label brands in the fluid milk market, it is of special interest to focus on possible differences in farm‐retail price transmission between private label and branded milk as well as the causes of heterogeneity. This article examines the heterogeneous effects of private label and branded products on price transmission in the fluid milk market using a panel threshold asymmetric error correction model. Results indicate that upward retail‐price adjustment is faster than the downward price adjustment for both private label and branded milk. The speed of adjustment of private label products is significantly faster than branded products in three different price regimes. We further investigate the reasons of heterogeneity in farm‐retail price transmission of private label milk. We find that both retailer market power and state pricing regulations contribute to the heterogeneity in asymmetric price transmission. Higher retailer market power causes retail prices of private label milk to rise faster and to fall slower. The existence of a state pricing regulation slows down the adjustment speed of retail prices of private labels back to the long‐run equilibrium, regardless of whether the retail price is low or high.     

Fish market integration and demand analysis: a Mediterranean case study

This study discusses the importance of delineating market boundaries prior to undertaking demand analysis. The Northern Adriatic Sea is considered a good case study by which to test this approach, given the richness of species landed there and their heterogeneous distribution across the space involved. Three groups of demersal species (whitefish, cephalopods, and crustaceans) are chosen for the study. First, geographical market boundaries are defined for each product (species) using price–price relations between market places. Second, demand is analyzed inside the defined market area through the linear approximation of the inverse almost ideal demand system. Geographical market integration bears several patterns of complete or partial integration, depending on the species. It could be said that integration is higher for species of high economic relevance among regions where large quantities are landed. For all product groups, our estimations suggest that moderate substitution effects do exist among species. The characteristics of the fleets and of the buyers, as well as the biophysical attributes of the sea basin (i.e., species richness and heterogeneous spatial distribution) are discussed as explanatory variables of market integration/segmentation.     

World market integration for export and food crops in developing countries: a case study for Mali and Nicaragua

Using a generalized error correction model, this article measures and compares market integration for export cash crops versus imported food crops for Mali and Nicaragua, and computes transmission elasticities between changes in the goods’ border and domestic prices. Both Mali and Nicaragua obtain the bulk of their export revenue from a particular agricultural commodity—cotton for Mali and coffee for Nicaragua—and both import the same key staple food of rice. To reap the economic gains from this trade specialization, the two countries’ agriculture must be well‐integrated into world markets. The two countries present an important policy contrast that affects their degree of world market integration and price transmission. In Mali, a parastatal enterprise controls its cotton industry, while Nicaragua has less state direction over agriculture. Reflecting this difference, the results show that for both its main export and import commodity, Nicaragua is more integrated into world markets and has higher price transmission than Mali. The results for Nicaragua also show much higher integration and price transmission for its main agricultural export (coffee) than its major import (rice).     

Testing the central market hypothesis: a multivariate analysis of Tanzanian sorghum markets

The central market hypothesis is important in the analysis of market integration because it implies a specific market structure while avoiding a simultaneity problem. However, despite its importance, the central market hypothesis is difficult to test and is therefore often assumed. This article shows that the hypothesis can be tested in a Johansen cointegration test provided that prices are nonstationary. This approach is applied to reveal the existence of central markets for sorghum in Tanzania. The results indicate that the Tanzanian sorghum market can be grouped into two market regions, with prices being determined in a central market in each region.     

Price shock transmission: evidence from the wheat‐bread market value chain in Ethiopia

This study assesses the degree of vertical price transmission along the wheat‐bread value chain in Ethiopia. This is pursued by applying a vector error correction model and an impulse response analysis using monthly price data for the period 2000–2015. Our analysis considers transmission of price shocks across different market levels, including from the international and domestic wheat grain markets at the upstream to the domestic wheat bread market at the downstream of the value chain. The empirical findings indicate that significant cointegration exists across prices of the different market stages. There is a transmission from international prices to domestic prices at downstream markets, in particular to flour and bread prices. Prices at upstream markets are largely influenced by the domestic wholesale market. In general, the speed of adjustment is quite slow with a half‐life of about one year for restoring the equilibrium price relationship. As price margins between the different market stages in the value chain have substantially decreased in the last 15 years, higher transmission, and thus exposure to international market shocks, can be expected in the future. The results also show that causal relationships exist between prices at different market stages—with the wholesale market identified as the key market level where prices and price expectations are formed.     

Cotton market integration and the impact of China's new exchange rate regime

This article studies the integration of China's cotton market with the international market, especially the U.S. market. Investigating the futures prices from the Intercontinental Exchange (ICE) in the U.S. and the Zhengzhou Commodity Exchange (ZCE) in China with several time series models, we find that a long‐run cointegration relationship exists between these two series. The two markets share price transmissions, and based on results from an Autoregressive Conditional Heteroskedasticity (ARCH) model, we find their price volatilities are similar. We argue that China's recent exchange rate reform and its gradual liberalization in bilateral cotton trade since it joined World Trade Organization have had important impacts on these futures markets. Based on these findings, several important economic and policy implications are derived.     

Commodity price bubbles and macroeconomics: evidence from the Chinese agricultural markets

This article investigates the links between commodity price bubbles and macroeconomic factors, with an application to the agricultural commodity markets in China from 2006 to 2014. Price bubbles are identified using a newly developed, recursive right‐tailed unit root test. A Zero‐inflated Poisson model is used to analyze the factors contributing to bubbles. Results show that (a) there were speculative bubbles in most Chinese agricultural commodity futures markets during the sample period, though their presence was infrequent; (b) economic growth, money supply, and inflation have positive effects on bubble occurrences, while interest rates have a negative effect; and (c) among all macroeconomic factors considered, economic growth and money supply have the greatest impact in triggering bubbles. Our findings shed new light on the nature and formation of bubbles in the Chinese agricultural commodity markets.     

Toward a green revolution in Africa: what would it achieve,and what would it require?

The current global food crisis has reemphasized the costliness of Africa's failure to achieve food security and poverty reduction. The instrument by which other more successful developing countries achieved these outcomes was a “Green Revolution” in agriculture. While previous research has provided largely discursive appraisals of the viability of an African Green Revolution, this article adopts a more rigorous methodology to address that question. First, an economy‐wide multimarket model, augmented with existing poverty–growth elasticities, is developed to assess the likely impacts of a rapid acceleration in food production (of the kind witnessed in previous Green Revolutions) on food prices, consumption and demand, farmer revenue, and poverty. Our results suggest that a rapid growth in staple production, together with more integrated regional markets, would reduce food prices by roughly 20–40% for consumers and 10–20% for producers among the major crops. This translates into a large rise in farm revenues, annual agricultural growth rates of 6.5% or higher, broader income growth and food security, and over 70 million Africans being lifted out of poverty. The article concludes by emphasizing the kinds of fundamental policy actions and resources that would be required for achieving these outcomes.